CMS Energy Corporation — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; this filing reports annual results, not standalone fourth-quarter results. The combined filing covers CMS Energy and its wholly owned utility subsidiary, Consumers Energy. CMS Energy also owns NorthStar Clean Energy. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and key financial metrics
CMS Energy operates primarily in Michigan. Consumers provides electric and natural gas service to 6.8 million residents; NorthStar develops and operates independent power generation, including renewables. Consumers accounts for most of CMS Energy’s assets, revenue, and earnings.
| CMS Energy consolidated | 2023 | 2022 | Change |
|---|---|---|---|
| Operating revenue | $7,462 | $8,596 | -13.2% |
| Operating income | $1,235 | $1,224 | +$11 |
| Net income available to common stockholders | $877 | $827 | +6.0% |
| Diluted EPS | $3.01 | $2.85 | +$0.16 |
| Net cash provided by operating activities | $2,309 | $855 | +$1,454 |
Calculated operating margin was approximately 16.5% in 2023 versus 14.2% in 2022. The increase in earnings despite lower revenue reflected rate increases, operating cost performance, higher NorthStar earnings, and a $131 million gain on extinguishment of debt. These were partly offset by lower utility sales, higher interest charges, storm restoration costs, depreciation, and taxes. The debt gain arose when CMS Energy repurchased Consumers first mortgage bonds.
Segment net income available to common stockholders was $550 million for electric utility (down $17 million), $315 million for gas utility (down $63 million), and $67 million for NorthStar Clean Energy (up $33 million). Corporate interest and other improved to a loss of $55 million from a loss of $152 million, mainly due to the debt-extinguishment gain.
Cash flow, debt, and liquidity
- CMS Energy ended 2023 with $248 million of cash and cash equivalents, including $21 million restricted. Consolidated operating cash flow rose to $2.309 billion, while capital expenditures were $2.407 billion and the Covert Generating Station acquisition used $812 million. Net cash used in investing activities was $3.386 billion.
- The operating-cash-flow increase was driven principally by favorable working-capital movements, including higher collections and lower gas purchase prices, and recovery of prior-year power supply costs. It should not be assumed to represent a comparable increase in recurring cash generation.
- At year-end, CMS Energy reported $15.648 billion of outstanding debt principal; Consumers reported $11.294 billion, including $431 million of Consumers bonds held by CMS Energy. CMS Energy’s balance sheet showed $14.508 billion of long-term debt, net of current maturities and unamortized items.
- Available revolving credit was $526 million for CMS Energy and $1.275 billion for Consumers. Consumers also had $93 million of commercial paper outstanding. Both companies were in compliance with debt covenants at year-end.
- Management expects liquidity and operating cash flows, together with financing access, to cover commitments. 2024 capital expenditures are projected at $3.5 billion for CMS Energy, including Consumers, and $3.3 billion for Consumers. The five-year capital plan is $18.7 billion for CMS Energy and $17.0 billion for Consumers.
Material changes versus the prior comparable period
- CMS Energy revenue fell $1.134 billion, principally reflecting lower electric and gas sales associated largely with unfavorable weather and lower sales volumes, as well as lower energy commodity-related revenue. Electric and gas rate increases contributed $165 million and $151 million, respectively, to utility earnings.
- Consumers’ 2023 net income available to its common stockholder declined to $865 million from $943 million. Utility earnings were pressured by unfavorable weather and lower deliveries, higher interest charges, and higher service restoration expenses; rate increases and lower operating expenses provided offsets.
- Consumers purchased the 1,200 MW Covert natural-gas generating station for approximately $812 million in May 2023. It retired the D.E. Karn coal units in June 2023 and plans to retire J.H. Campbell coal generation in 2025.
- CMS Energy’s total assets rose to $33.517 billion from $31.353 billion, while long-term debt on the balance sheet increased to $14.508 billion from $13.122 billion. Capital expenditures were $3.280 billion, up from $2.393 billion.
Outlook, risks, contingencies, and unusual items
- Management expects weather-normalized electric and gas deliveries to remain relatively stable over the next five years, with energy-efficiency programs offset by modest demand growth. Actual results remain sensitive to weather, Michigan economic conditions, rates, energy prices, and customer usage.
- Michigan’s 2023 Energy Law raises renewable-energy requirements to 50% by 2030 and 60% by 2035, and establishes a clean-energy standard of 80% by 2035 and 100% by 2040. Consumers must update its renewable-energy plan by 2025 and Clean Energy Plan by 2027. Its stated goals include net-zero electric-business carbon emissions by 2040, net-zero methane emissions from gas delivery by 2030, and net-zero greenhouse-gas emissions for the entire business by 2050.
- Consumers’ five-year plan includes $7.3 billion for electric distribution and other projects, $6.3 billion for gas infrastructure, and $3.4 billion for clean generation. These investments and rate-base growth depend on execution, regulatory approvals, cost control, and recovery in customer rates.
- Rate proceedings: Consumers received approval for a $155 million annual electric rate increase effective January 2023 and a $95 million annual gas rate increase effective October 2023. Its revised electric rate request was $169 million; its pending gas rate request was $136 million. Outcomes and timing depend on the MPSC.
- CMS Energy and Consumers recorded $3.886 billion of regulatory assets and $3.950 billion of regulatory liabilities at year-end. Recovery of regulatory assets depends on regulatory decisions; PwC identified accounting for new regulatory matters as a critical audit matter.
- Environmental obligations include a $62 million Consumers liability for former manufactured-gas-plant sites and a $45 million CMS Energy liability for Bay Harbor remediation. Consumers estimates $238 million of coal-ash compliance capital and removal expenditures for 2024–2028. Cost recovery is expected by management but is not assured.
- Material unresolved disputes include the Ludington overhaul litigation with TAES and Toshiba, where an adverse outcome could be material, and Wolverine Power’s approximately $37 million claim concerning the planned J.H. Campbell 3 retirement. The filing does not provide a clear estimate of potential total losses for these disputes.
- Other notable items: a $33 million pre-tax charge for a voluntary separation program; a $131 million pre-tax debt-extinguishment gain; and $7.2 billion of future Consumers PPA capacity and energy commitments through 2048. CMS Energy reported no material cybersecurity incidents to date, while identifying cyber threats, severe weather, regulatory changes, financing access, and project execution as significant risks.
Important facts for investors to verify
- How much of the 2023 operating-cash-flow improvement was temporary working-capital benefit, and what are expected recurring cash flows after planned investment?
- Progress and final outcomes in the pending electric and gas rate cases, including approved returns and the pace of cost recovery.
- Whether the $18.7 billion five-year CMS Energy capital plan remains on schedule and within budget, and how it will be financed without undue pressure on credit metrics or dividends.
- Execution of the clean-energy transition, including replacement capacity, renewable project approvals, reliability, and compliance with Michigan’s new standards.
- Developments in the Ludington and Campbell disputes, environmental remediation estimates, and the recoverability of regulatory assets.
- Debt maturities, refinancing costs, and available liquidity. The filing reports the companies’ liquidity expectations, but future access to capital markets is not guaranteed.